New Gainful Employment Rule Lets Many Schools off the Hook

SOURCE: AP/Nick Ut

Pedestrians pass by a building at the private, for-profit Westwood College, in Torrance, California. High dropout and student loan default rates in many for-profit college career programs spurred today's gainful employment rule.

Today the Department of Education released the final version of its gainful employment rule, a measure many hoped would require career-education programs—particularly at for-profit colleges—to make sure their students get a high-value education. The rule is a step in the right direction but it leaves much to be desired.

High dropout and student loan default rates in many for-profit college career programs spurred the rule, and it is based on the simple premise that students who attend career-preparation programs should be able to earn enough money upon graduation to pay off the debt they accrued pursuing their education.

The rule released today differs in many ways from the draft version the department issued in July 2010. The changes represent an effort to work with career colleges and give them an opportunity to reform. But by giving so many chances for colleges to change the final rule also gives the department and other policymakers more work to do to help students choose high-value programs and protect the taxpayer investment in financial aid.

Policymakers should respond to the rule with support, but they should make more of an effort to give students information about the risks of college. And they should find other ways to hold colleges accountable for how they serve students.

The July draft version conditioned an education program’s participation in the federal student loan programs on its graduates’ debt-to-income ratio and the percentage of its students who are repaying their student loans. The July draft struck a balance by eliminating programs of extremely poor value but allowing programs of dubious value to continue in a “restricted status.” They would receive federal funds while working to improve as long as they limited their enrollment growth and warned consumers of their graduates’ high debt levels.

The final version of the rule released today still focuses on debt-to-income and repayment rates. But it gives programs more leeway. Only colleges with extremely low repayment rates and high debt burdens are subject to any sanction. Programs with dubious debt burdens and repayment rates can continue unrestricted. Career-education programs that meet any one of the metrics (repayment rate above 35 percent or debt-to-income ratio below 12 percent or a debt burden of less than 30 percent of discretionary income) will not be restricted in any way.

To give some context, the median repayment rate for programs subject to the rule is around 50 percent. By the department’s own estimates, only 1 percent of all programs subject to the rule will lose eligibility for federal student aid in 2015.

The final rule also gives the poorest-performing education programs significant time to comply with the rule in addition to eliminating the restrictions on dubious-but-not-ineligible programs.

First, the sanctions under the rule go into effect in 2015. Second, the rule now contains a “three strikes” component. Colleges that fail to meet the metrics can continue to operate for three years without losing federal funds and without any cap on enrollment growth. There are several other small changes to the rule that make it even easier for colleges to comply, including modifications to how the department will calculate the debt burden metrics.

In the meantime, students will continue to enter programs between now and 2015 that are so poor performing that they do not merit federal aid dollars, and taxpayer dollars will continue to be spent on educational programs that overcharge and underdeliver. Not to mention for-profit colleges and other career-education programs will continue to earn billions without having to account for the success or failure of their students.

The new gainful employment rule is a step toward holding colleges accountable for how they serve both students and the public. But the longer it takes to eliminate the worst career-education programs, the more students end up mired in debt and without a way to climb out.

The debate over the gainful employment rule brought significant attention to the problems in the for-profit college sector, especially the disconnect between the price of tuition and the value of the educational services they provide. Unfortunately, while the debate opened this can of worms, the final rule does not close it back up. Continued efforts by Congress, the Department of Education, and the state attorneys general who are investigating fraud and abuse in the for-profit sector will be necessary to ensure students end up with educational credentials that will serve them well and strengthen our workforce.